Scottish tax ready reckoners: direct effects of illustrative tax changes for 2024 to 2025

Non-Domestic Rates

Non-Domestic Rates (NDR), sometimes referred to as business rates, are a form of property tax paid by businesses, charities and public sector organisations, which help pay for local services. The amount of NDR paid is determined by applying the relevant tax rate to a property's rateable value (RV), less any reliefs that have been awarded. The Scottish Government is responsible for setting NDR policy, whilst local councils are responsible for the administration of NDR.

The NDR ready reckoners provide an order of magnitude estimate of NDR revenue that could hypothetically be raised in addition to existing policy for 2024-2025, by varying key policies of the NDR tax system: the Basic Property Rate (BPR, often referred to as poundage), the Intermediate Property Rate (IPR) and the Higher Property Rate (HPR). Tax rates cannot be amended in-year.

As set out in table 5, there are around 260,000^[12] non-domestic properties that are liable to pay NDR in 2024-2025, although properties that receive a relief will receive a reduced or nil net NDR liability^[13]. Any changes to the Basic Property Rate (poundage) would change the gross NDR bills (before reliefs) for around 240,000 properties with RV up to and including £51,000. The Intermediate Property Rate is applied to around 10,500 properties, and the Higher Property Rate is applied to around 11,500 properties.

The NDR ready reckoners in Table 1 relate to the Contributable Amount of NDR, which is forecast by the Scottish Fiscal Commission (SFC). The Contributable Amount is the revenue collected by local councils and transferred to Scottish Government. The Contributable Amount is pooled in the NDR rating account and is then redistributed to councils as the Distributable Amount, as part of the Local Government Finance Settlement. The Distributable Amount is set in the Budget and remains unchanged during the financial year. Differences between the Distributable and Contributable Amounts are managed through the Non-Domestic Rating Account (the 'NDR pool')^[14].

Table 1 shows the additional benefit to the Scottish Budget of increases to NDR tax rates:

• A 1p increase to the Basic Property Rate (or poundage) would increase NDR revenues by around £11m in 2024-2025.
• A 1p increase to the IPR would increase NDR revenues by around £6m in 2024-2025.
• A 1p increase to the HPR would increase NDR revenues by around £43m in 2024-2025.

The Basic, Intermediate, and Higher Rates are separate rates that do not affect each other. For example, increasing the BPR by 1p would not change the amount paid by ratepayers liable for IPR or HPR. In the previous iteration of the NDR ready reckoner, this was presented differently, with an implicit assumption that a 1p increase in BPR would also increase rates for IPR and HPR payers by 1p.

Any combination of NDR policies in Table 1 can be broadly estimated by summing the impact of each individual change. For example, a policy which adds 1p to the Basic, Intermediate, and Higher Property Rates would raise around £60 million. The estimates for rate changes can also be scaled up or down to some extent, in that a 0.5p rise in any rate would raise half as much as a 1p increase. In addition, for any rate change, the impacts of rate increases and rate cuts are also broadly symmetric so that a 1p cut in the Basic Property Rate would reduce revenue by around £11 million.

Areas of uncertainty

The main area of uncertainty relates to assumptions made with respect to revaluation appeals following the 2023 revaluation. Once resolved, a successful revaluation appeal will have the effect of reducing total RV and therefore NDR revenues, as ratepayers are re-billed on the basis of a lower RV for their property. A new appeals system has taken effect for this current appeals cycle. The Scottish Government does not have any data to suggest how the changes to the appeals system will affect the lodging or processing of appeals in practice. In line with the SFC forecast, the ready reckoners are produced on the assumption that appeals losses will happen earlier than in the previous revaluation cycle because of the shorter cycles and changes in appeals processing.^[15]

A further area of uncertainty relates to new NDR policies introduced from 1 April 2023, and in Budget 2024-25. These include hospitality relief for islands, changes to the thresholds in the Small Business Bonus Scheme, as well as the introduction of a general transitional relief, and specific transitional reliefs for small businesses, and for new entries to the valuation roll located in park land that were exempt from rating prior to 1 April 2023. The effect of a change in Basic Property Rate, Intermediate Property Rate or Higher Property Rate on these policies does not scale in a linear or symmetric fashion and has not been costed as part of the ready reckoner exercise.